CH 9 - Overview of Business Taxation

Question 1

Are shareholders liable for the debts of a corporation?

Answer 1

No

Question 2

2 elements of the two-tier tax system:

Answer 2

• Corporations are subject to tax on income earned.
• Shareholders are taxed on income distributions from the corporation

Question 3

Net Income of a Corporation formula

Answer 3

Investment Income + Business Income + Net Taxable Capital Gains

Question 4

Taxable Income formula

Answer 4

Net Income for Tax Purposes
Less special deductions:
* Donations to charitable organizations
* Net capital losses from other years
* Non-capital losses from other years
* Dividends from taxable Canadian corporations
* Others

Question 5

2 Types of Corporations

Answer 5

• Private Corporation (CCPC)
• Public corporation

Question 6

provinces and territories have two rates of income tax

Answer 6

a lower rate and a higher rate

Question 7

The lower rate applies to either: (2)

Answer 7

• the income eligible for the federal small business deduction; or
• the income based on limits established by the particular province or territory

Question 8

The higher rate applies to

Answer 8

all other taxable income

Question 9

At the federal, eligible corporations benefit from an annual tax credit equal to 19% of
the lesser of: (3)

Answer 9

• active business income earned in Canada; or
• $500,000 business limit shared with associated corporations; or
• taxable income

Question 10

The objective of the integration of business income is:

Answer 10

to tax the small business owner at the same level, whether the business is incorporated or not

Question 11

How is a shareholder loan treated for the shareholder taxwise?

Answer 11

full amount of the loan is added to the income of the shareholder in the year the loan is received unless it is repaid before the NEXT year end of the taxation year of the corporation.

Question 12

Advantages of incorporating: (4)

Answer 12

• deferral advantage
• entitle the owner to the $883,384 capital gains exemption
• Estate freezing easier
• Limited liability

Question 13

DISADVANTAGES OF INCORPORATION (3)

Answer 13

• Start-up Losses: if no gains in the future, cannot take advantage of losses
• Expensive to set up and maintain corporation
• Potential Double Taxation at death

Question 14

How much is the GST tax?

Answer 14

5%

Question 15

Net GST Remittance formula

Answer 15

GST collected on sales (from customers) – Input tax credits for GST paid on purchases

Question 16

To use the simplified method for GST remittance, you must meet the following conditions: (3)

Answer 16

1. $500,000 or less in revenue was obtained from taxable goods and services in the
   last fiscal year,
2. Taxable supplies amount to a total of $500,000 or less,
3. $2 million or less in taxable purchases were made during the last fiscal year.

Question 17

Among zero-rated supplies, we find: (5)

Answer 17

• Basic groceries
• Medical devices
• Prescription drugs
• Agriculture, fishing
• Exports

Question 18

GST Tax-exempt Supplies (4)

Answer 18

• Most health, medical and dental services
• Childcare services
• Legal aid
• Financial services

Question 19

Who has to register for the GST and collect GST on all sales of
taxable supplies?

Answer 19

All corporation pursuing commercial activities with gross revenue greater than
$30,000.

Question 20

How are donations treated when computing taxable income?

Answer 20

deduct the full amount from net income